Daily Profit Compass April 2

Tickers discussed: SPY QQQ IWM     Strategy and Tactical Update

The Daily Profit Compass provides the stock market analysis for the day. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Trader’s Couch :  Operate with a Beginner’s Mind

“Beginner’s Luck” has less to do with luck and more about how a beginner approaches their task. Beginners approach things with a mind alive with possibilities. No preconceived notions, completely unburdened by “you’re not supposed to do it that way” or “this is really hard and complicated”.   It’s the idea that its quite possible a 5th grader with average aptitude can trade better than we can. “Experts” have a very narrow field of view; opposite of the beginner who often synthesizes solutions drawing from limitless possibilities.  This phenomenon probably accounts for the reason new traders often do very well in their first year of trading, then digress as they “learn more”.

Approach your trading as a beginner and with a “beginner’s mind”. Pull back the curtains and let the light in. Let your thoughts be alive with possibilities. Your trading will be better for it.

 

Earnings

  • News Flow

  • US intelligence says China faked its virus data
  • Unemployment claims at 8.3am. Estimates all over the place. 1M – 5M.
  • Italy seems to be stabilizing
  • China to begin oil purchases for its strategic reserves ( the US backed away from filling our SPR )
  • The Treasury is hiring Wall Street firms for advice on how best to implement the CARES Act
  • $BA to offer buyouts to all employees. Layoffs yet to be announced.
  • Retail traffic for w/e March 27 was down 97%

 

Yo-yo

A 4% drop in Wall Street indexes sapped the life out of “the new bull market” as fresh fears about the impact of the corona virus washed across trader sentiment. That said, this morning futures are boldly green being up about 1.75-2% ahead of the unemployment claims that will be posted at 8.30 am.   Last week after record claims were announced, the indexes rallied the whole day on bad news. So we’ll have to wait n see how today plays out in this Yo-Yo market.  Trader’s are obviously struggling processing information inside the “fog of war”.  There is simply no visibility on the key factors traders / investors typically use to value stocks.  So the guessing continues.  I am of the belief that the markets have yet to fully price in the effects of a global  economic full stop.

Strategy and Tactics

This is not a market conducive to camping out either long or short. We just had a 20% pop where it paid to be long. Now, despite futures being up this morning, we are firmly on a short term sell signal. We’ve got to remain flexible and fluid in our thinking and positioning. Take profits when you have them, and manage risk exposure like a hawk.  The charts remain very dynamic so our analysis and positioning need to reflect that.  In this environment technicals take center stage as the list of “known unknowns” gets quite lengthy.

Wave 2 Data Flow

  • 4/2    Challenger Job cuts / unemployment claims / factory orders / nat gas inventory
  • 4/3    March Employment number / PMI services / ISM non-mfg index /  Rig count

False Precision:  Guessing at Known Unknowns 

Very tough to call bottoms and the shape of a potential recovery until more pieces of the known unknowns are filled in.  Don’t fall for those promoting false precision. If companies have pulled earnings guidance how is it possible to say they are  cheap?  That is just one example.

  • Duration and depth of the medical crisis ( nothing happens in the economy until the medical crisis subsides )
  • How long will it take to get the money in the hands of companies and consumers
  • How long a complicated, delicate economic cold re-start might take; like a restart of a nuclear reactor that has gone dark
  • Does the crisis alter consumer behavior in a lasting, meaningful way?
  • The time it takes for companies to deleverage and repair balance sheets ( many will suspend divvy and halt buybacks during this period )
  • The effect of the crisis on earnings and earnings guidance.
  • The depth of credit downgrades and for how many companies does a liquidity crisis morph into a solvency crisis
  • Length of time before the fog blanketing earnings visibility lifts.
  • Impact of QE infinity and exploding deficits

 

Index Chart Review

Futures are rallying ahead of the unemployment claims data release at 8.30.  Last week they rallied all day despite a horrible number. Be open to that today. There is an open gap above that is a natural target for a gap fill. THe chart annotations are detailed. Follow them in your trading today. Remember, all our downside targets from yesterday are resistance levels for the advance. Be ready for quick reversals.

SPY 2 hour

SPY 30 min.

QQQ 2 hour 

QQQ 30 min

IWM 30 min

 

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